Blog Posts

As the global economy slowly turns around, we have embarked on a new era of growth. While innovation and new business ideas gain central stage, we should remember that some old-fashioned management practices are worth preserving.

By “old-fashioned” I mean: Companies should build a solid capital and reserve base, only grow if they can do so profitably, and avoid overleveraging at all costs. In simple terms, corporations should have some spare cash at hand for unexpected threats and opportunities and never engage in activities which put their entire future at risk.

A trip back to the Renaissance illustrates the point.

Unless you’re a student of European history, you’ve probably never heard of the Fuggers, a German merchant and banking family. In the 16th century, though, they were the reigning masters of the universe. The Fuggers bankrolled Europe’s greatest empires; their political influence was comparable to the Medici in Italy, and their wealth was matched only by the Rothschild’s a century later. Originally merchants of fine clothing, they diversified into banking in the 15th century. Their closest dealings were with the Habsburg family, which provided mining rights as securities against loans from the merchants....

Some companies have the knack of turning in stellar performance decade after decade. To be sure, they may lose their way for a year or two, but somehow they overcome the setback and resume their relentless progress. General Electric is one such company. So is Shell. Understanding what sets these companies apart from their rivals is arguably the holy grail of managers and business scholars alike.

For the last six years, I have led a team of eight researchers in a study of some of Europe's oldest and best companies. We asked: What distinguishes companies that managed to perform at a very high level over very long periods from others that do not perform as well? To answer this question we selected a sample of companies that had turned in an extraordinarily high performance over the past 50 years (our gold medalists outperformed the stock exchange by at least the factor 15) and compared each with another old company, whose performance was still good but which was well behind the very high performer (we call them silver medalists). Fifteen years after Collins and Porras' Built to Last , our work incorporates fresh insights from management science and provides...